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oksian1 [2.3K]
3 years ago
14

Mr. A, a cash-basis taxpayer, sold his business in the current year for $120,000. The contract allocated $40,000 to inventory an

d $80,000 to real property. The book value of the inventory was $38,000. The real property had a cost of $40,000 and depreciation claimed on a straight-line basis was $20,000. In the current year, Mr. A received a down payment of $60,000 of which $40,000 was payment for the inventory. Mr. A had no other Sec. 1231 transactions. What is the amount and nature of the gain that Mr. A should report in the current year using the installment method?
Business
1 answer:
Leona [35]3 years ago
4 0

Answer:

$2,000 ordinary gain and $15,000 long term capital gains

Explanation:

Under the installment method, the taxpayer will recognize gains based on the installments that they actually receive, not the whole contract. This method is generally used for real estate transactions that involve installments payments during several years.

In this case, Mr A received $60,000:

$40,000 for inventory, so gain = $40,000 - $38,000 = $2,000 ordinary gain

$20,000 for real property (25% of transaction price) = $20,000 x [($40,000 - $20,000) x 25%] = $20,000 - $5,000 = $15,000 long term capital gains

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Great Subs Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently finance
tatuchka [14]

Answer:

WACC 13.85600%

Explanation:

First we calculate Eastern Pizza CAPM:

Ke= r_f + \beta (r_m-r_f)

risk free = 0.08

market rate = 0.12

premium market = (market rate - risk free) 0.04

beta(non diversifiable risk) = 2

Ke= 0.08 + 2 (0.04)

Ke 0.16000

Then we solve for WACC

WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})

Ke 0.16000

Equity weight 0.8

Kd 0.08

Debt Weight 0.2

t 0.34

WACC = 0.16(0.8) + 0.08(1-0.34)(0.2)

WACC 13.85600%

The company will use the data on eastern Pizza to evualuate project presented to it. Also, it will  consider the new tax rate to determinate the tax shield.

3 0
3 years ago
Suppose the economy had been producing at potential output but is now experiencing a recession. Which of the following are discr
Novay_Z [31]

Answer: a) -A tax cut

-Additional spending on national park facilities

b) Expansionary fiscal policy

Explanation:

Fiscal Policy refers to how the government of a country is using it's spending and taxes to influence Economic conditions on a Macro level.

The keywords for this question are TAXES and SPENDING.

The means that a Discretionary FISCAL policy includes Taxes and Spending.

Now the way to close the Recessionary gap that is opening is to put more money into the Economy. The Government can do this by REDUCING TAXES which will means people have more money to spend and ADDITIONAL SPENDING on NATIONAL PARK FACILITIES as this means that the government is pumping more money into the Economy.

The discretionary fiscal policy needed to bring the economy closer to potential output is an example of an EXPANSIONARY FISCAL POLICY.

This is where the Government aims to put more money into the economy so that growth can be acheived and they do this by lowering taxes and increasing spending either singularly or simultaneously.

3 0
3 years ago
All economic questions and problems arise from ____.
Fiesta28 [93]
All economic questions and problems arise from <span>C. scarcity. scarcity is defined as the lack of resources and is the opposite of abundance. If scarcity such as famine is experienced by a country or nation, there arise questions why such state happened</span>
3 0
3 years ago
Read 2 more answers
g . Kings Donut Inc common stock sells for $39.86 a share at a market rate of return of 9.5%. The company just paid its annual d
Simora [160]

6.29% is the rate of growth

<u>Explanation:</u>

<u>The following formula is used </u>

Price = D1 / ke -g

39.86 = 1.2 multiply with (1 + g) / 0.095 - g

3.7867 – 39.86 g = 1.2 + 1.2 g

2.5867 = 41.06 g

Now, we have to calculate the value of g  

g = 2.5867 divide 41.06

= 0.0629  

= 6.29 %

Where:

G = growth, ke = market rate of return, D1 = dividend ( annual), P = price of the share of company

7 0
3 years ago
Orion Flour Mills purchased a new machine and made the following expenditures:
GrogVix [38]

Answer:

Dr Equipment 62400

Dr Prepaid Insurance 500

Cr Cash 2900

Cr Accounts Payable 60,000

Explanation:

Preparation of the journal entry to Record the above expenditures for the new machine.

Dr Equipment 62400

Dr Prepaid Insurance 500

Cr Cash 2900

Cr Accounts Payable 60,000

(62,400+500-2900)

Equipment:

Purchase price ($55,000) + Sales tax (5,000) + Shipping (800) + Installation (1,600) =

Total cost 62400

Cash:

Shipment of machine (800) + Insurance on the machine ((500)) +Installation of the machine (1,600) = 2900

8 0
2 years ago
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